DIGEST: A lawyer may not enter into a settlement agreement that restricts
her own or another lawyer's ability to represent one or more clients, even
if such an agreement may be enforceable as a matter of law.

CODE: DR 2-108(B).

QUESTION

May a lawyer offer or agree to enter into an agreement, in connection with
the settlement of a dispute, which provides that a lawyer shall not represent
the same client, or different clients, in disputes against the same opposing
party?

OPINION

In a 1997 decision, the Appellate Division, First Department, N.Y., disqualified
plaintiff's counsel because their representation violated the settlement agreement
in a prior action, which provided as follows:

[Neither the settling plaintiff's law] firm, nor any of its employees, agents,
or representatives will assist or cooperate with any other parties or attorneys
in any . . . action against the settling defendants arising out of, or related
in any way to the investments at issue in the actions or any other offerings
heretofore or hereafter made by the settling defendants . . . nor shall they
encourage any other parties or attorneys to commence such action or proceeding.

SeeFeldman v. Minars, 230 A.D.2d 356, 357, 658 N.Y.S.2d 614,
615 (1st Dept. 1997). This decision reversed the decision of the New York State
Supreme Court, New York County (Herman Cahn, J.), which had denied the disqualification
motion, holding that the prior settlement agreement was unenforceable as against
public policy, based on the provisions of DR 2-108(B).

The Appellate Division held that the initial settlement agreement was not
against the public policy of the State of New York. As part of the justification
for its holding, the court noted that it "would appear unseemly" to
permit the "offending attorneys [to use] their own ethical violations
as a basis for avoiding obligations undertaken by them." Feldman,
230 A.D.2d at 359, 658 N.Y.S.2d at 616. Cf.Cohen v. Lord, Day & Lord,
75 N.Y.2d 95, 551 N.Y.S.2d 157 (1989) (invalidating, as violative of DR 2-108(A),
provision of law firm partnership agreement which imposed financial disincentive
on withdrawn partner who competed with former firm).

The Appellate Division's decision in Feldman that the settlement agreement
was enforceable involves a matter of law, which is beyond the purview of this
Committee. However, the Feldman court stated that "a strong case
can be made" that such an agreement violates DR 2-108(B), and left such
decision to the "appropriate disciplinary authorities." In that context,
we believe it is appropriate for this Committee to express our view concerning
the ethical propriety of such agreements.

DR 2-108(B).

DR 2-108(B) provides as follows:

In connection with the settlement of a controversy or suit, a lawyer shall
not enter into an agreement that restricts the right of a lawyer to practice
law.

This understanding of DR 2-108(B) is supported by the history of the provision.
As adopted by the ABA House of Delegates in August 1969, DR 2-108(B) of the
Model Code of Professional Responsibility provided:

[i]n connection with the settlement of a controversy or suit, a lawyer shall
not enter into an agreement that broadly restricts his right
to practice law, but he may enter into an agreement not to accept any
other representation arising out of a transaction or event embraced in the
subject matter of the controversy or suit thus settled. (Emphasis added.)

The model disciplinary rule was revised in 1970 to delete the underlined provisions.
The Chair of the ABA Committee on Ethics and Professional Responsibility, Walter
P. Armstrong, Jr., explained the basis for deleting these provisions as follows:

a covenant of that type would, in effect, restrict . . . a lawyer's ability
to engage in the practice of law by agreeing in advance before he had considered
any of the merits, that he would not represent certain types of clients.
Secondly, we [the Committee] felt that a covenant of that type would inevitably
involve a conflict of interests.

See ABA Comm. on Ethics and Professional Responsibility, Formal Op.
93-371 (1993).

We also conclude that DR 2-108(B) is directed to lawyers on both sides of
the restrictive agreement. Because the rule prohibits a lawyer from entering
into an agreement that restricts "the right of a lawyer to practice
law," it applies regardless of whether the lawyer entering the agreement
is restricting her own right to practice law or that of another. In this respect,
the Code is broader than Model Rule 5.6(b), which provides that "[a] lawyer
shall not participate in offering or making . . . an agreement in which a restriction
on the lawyer's right to practice is part of the settlement of a controversy
between private parties." Rule 5.6(b) (Restrictions on Right to Practice)
of the Model Rules of Professional Conduct (emphasis added).